SHAFAQNA – Greek borrowing costs leapt and bank shares were hit hard on Thursday after the European Central Bank abruptly pulled the plug on its funding for the country’s financial sector in what Athens labelled an act of coercion.

The ECB decision to stop accepting Greek bonds in return for funds shifts the burden onto Athens’ central bank to finance its lenders and marks a big setback for the leftist-led government’s attempt to negotiate a new debt deal with its euro zone peers.

The Athens Stock Exchange FTSE Banks Index .FTATBNK plunged 22.6 percent at the open before recovering somewhat. Three-year government borrowing costs leapt more than three percentage points to nearly 20 percent, leaving Greece utterly shut out of the markets.

“Greece does not aim to blackmail anyone but will not be blackmailed either,” A Greek government official said in a statement. “The ECB’s decision … is an act of political pressure to quickly reach a deal.”

Finance Minister Yanis Varoufakis, who pleaded in vain with ECB President Mario Draghi on Wednesday to keep funding Greek banks for several months while Athens negotiates a debt deal, met German Finance Minister Wolfgang Schaeuble on Thursday after Berlin set out uncompromising terms for any further aid.

In a policy paper circulated to EU officials and seen by Reuters, Germany said Greece must stick to the terms of the 240 billion euro bailout negotiated by the previous government, and not roll back planned privatisations and cuts in the minimum wage, pensions and the public sector workforce.

Greek banks have been given approval to tap an additional 10 billion euros (8 billion pounds) in emergency funding over an existing ceiling if necessary, the Greek official said.

Prime Minister Alexis Tsipras and Varoufakis have spent the week touring EU capitals trying to build support for a debt renegotiation and an easing of austerity measures under the country’s bailout programme which both say they have no interest in extending beyond the end of February.

They have found scant backing in Paris, Rome, Frankfurt or Brussels even before Varoufakis’s meeting with Schaeuble, the most hardline euro zone finance minister.

European Commission Vice President Valdis Dombrovskis said Athens must extend its bailout programme, due to expire on Feb. 28, to gain time to negotiate a longer-term programme.

“In the European Commission’s assessment the most realistic way forward is to … extend the duration of the programme for another couple months or half a year,” Dombrovskis told the Reuters Euro Zone Summit.

The new Greek leaders have had a cool reception even in left-leaning countries such as France and Italy which Athens had hoped would support its case for debt relief.

French President Francois Hollande told a news conference the ECB decision to restrict funding for Greece was legitimate and put the onus on euro zone governments to hammer out a deal on the Greek debt crisis, and on Athens to present reforms.

EMERGENCY ROOM

Two Greek banks had already begun to tap the more costly emergency liquidity assistance from the Bank of Greece after an outflow of deposits accelerated following the victory of the hard left Syriza party in a Jan. 25 election, banking sources had told Reuters.

The health of Greece’s big banks is central to keeping the country afloat.

The Greek Finance Ministry said the ECB decision put pressure on the Eurogroup of euro zone finance ministers to reach a deal that would be “mutually beneficial” for both Athens and its euro zone partners.

But while Varoufakis has called for time until May to agree some form of debt swap, the ECB move tightened the screws on Athens to accept an extension of the current bailout plan or reach a rapid new arrangement.

Bundesbank chief Jens Weidmann said even emergency lending from the Bank of Greece should be a short-term measure. That credit line can be stopped if a two-thirds majority on the ECB Governing Council vote to do so although such a decision would likely lead to the collapse of Greece’s financial system.

“ELA should only be awarded for the short term and to solvent banks,” Weidmann told business daily Boersen Zeitung in an interview.

“As the banks and the state are closely bound in Greece, the economic and fiscal policy course that the Greek government follows plays an important role in this assessment,” he said.

Speaking later in Venice, Weidmann demanded that countries bear the consequences of their own fiscal decisions and warned that any move to bail out a euro zone member could lead to the spread of doubts about solvency.

With the Greek public determined to cast off the stigma of supervision by a troika of EU, IMF and ECB inspectors, the semantics of any new arrangement may be crucial.

A source familiar with the Greek position said after the talks with Draghi: “We are thinking of a bridging programme. You may not call it a ‘programme’ for political reasons but perhaps a contract.”

Tsipras, 40, won power promising to negotiate a debt write-off, reverse some key reforms and end budget cuts. At home, his poll ratings are high and the media is extolling his stance but if he fails to deliver, that may change.